Long-term Security of Gas Supply in a Liberalized
Market Jean-Paul PINON
Director Gas Market, CREG Co-chairman of the Gas Working Group,
CEER
UNEC Round Table – Genève 20/01/2004
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Security of supply (SoS) framework
PEAK VO LUM E
CO M M O DITYavailab ility o f g ase.g. back-up contracts
PEAK VO LUM E
CAPACITYavailab ility o f transpo rte.g. meshed distribution grid
M ICRO -L EVELdo w n stream to consum ers
PEAK VO LUM E
CO M M O DITYavailab ility o f g as
e.g. storage gas
PEAK VO LUM E
CAPACITYavailab ility o f transpo rt
e.g. interconnection, alternative routes
M ACRO -L EVELe.g . at a co untry o r EU-scale
SECURITY O F NATURAL G AS SUPPLY
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Risk Management Tools
Most countries manage their SoS combining : Network sizing based on long term
planning Storage Diversification of supplies Interruptible contracts and virtual
storage Booking of additional transportation
capacities. Fewer countries (can) rely presently on:
Utilisation of LNG terminals Excess of production capacity Purchase on the Spot Market Buy back mechanisms of firm capacity
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Non firm supply contracts : market survey in Belgium in
2001Supply contracts in 2000 (% of industrial customers) :
52% non firm21% firm27% firm and non firm
For non firm supply contracts :76% the supplier has the right to interrupt24% the customer has the right to interrupt
Why do customers choose a non firm supply contract :
62% ‘bi-fuel’ equipment this investment is in 56% of the cases not only made for hedging against the interruption risk but also for arbitrage
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Non firm supply contracts : market survey in Belgium in
2001Modal frequency of interruptions:
once per yearNotice (modal period) :
1/3rd 1 hour1/3rd 1 day1/3rd 1 week
Price reduction compared to firm supply :the price reduction required by the ‘modal’ customer is lower than 25%.
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Supply
Supply
Supply
Supply
contractual flows physical flows
areas supplied from one source
Minimizing transport costs
by swapping
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YEAR 2000YEAR 2000source : GTE, July 03
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YEAR 2005YEAR 2005source : GTE, July 03
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YEAR 2010YEAR 2010source : GTE, July 03
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Fixing security of supply ( SoS) levels in an open
market Collective level of SoS
=
sum of individual levels of SoS + corrective PSO (e.g. PSOs for PLR services)
Individual level of SoS = PSO (e.g. 1 in 20)
Individual level of SoS = negotiated
households large consumers
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Top-up
In a liberalized market there is a real risk that suppliers take a chance on weather conditions and do not book enough storage.
“Top-up” refers to public service obligations guaranteeing that enough physical storage capacity and/or gas in storage will be available.
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Top-upComplex system : monitoring both the available infrastructure and the
inventory levels throughout the year calculation of the amount of top-up storage: taking into
account the benefits of virtual storage, the legitimate trade-off between additional transport capacity and storage, etc
who is in charge of top-up storage: centralizing the responsibility in one supplier of last resort (TSO, storage operator or a specific body?) or imposing a level of storage to every supplier or combining both methods ;
targeting the costs: the costs incurred by the centralized body should be covered by a legal fund, preferably fed by those who are responsible for a lack of storage.
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Belgian casemarket demand for infrastructure
servicessupply portfolio
network simulations
pre-feasibility studies
draft indicative plan for gas supply in Belgium, with an investment program for the next 10 years
consultation of interested parties
proposal by the CREG
approval by the Minister
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Financing new infrastructure
World Energy Investment Outlook 2003, published by IEA: to be taken with caveats!
distinguish regulated business (network activity) from competitive activities (production)
in regulated business: fundamental difference between cost-plus tariffs and price-cap regulation
in production: no need for industry-specific incentives for investment, besides the acceptance of long term take-or-pay contracts